The Impact of Uncertainty on Investment: A Meta-Analysis

Tinbergen Institute Discussion Paper No. TI 06-060/3

30 Pages Posted: 17 Jul 2006

See all articles by Mark J. Koetse

Mark J. Koetse

Free University of Amsterdam - Department of Spatial Economics

Henri L. F. de Groot

VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Raymond J.G.M. Florax

Purdue University; VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: July 2006

Abstract

In this paper we perform a meta-analysis on empirical estimates of the impact between investment and uncertainty. Since the outcomes of primary studies are largely incomparable with respect to the magnitude of the effect, our analysis focuses on the direction and statistical significance of the relationship. The standard approach in this situation is to estimate an ordered probit model on a categorical estimate, defined in terms of the direction of the effect. The estimates are transformed into marginal effects, in order to represent the changes in the probability of finding a negative significant, insignificant, and positive significant estimate. Although a meta-analysis generally does not allow for inferences on the correctness of model specifications in primary studies, our results give clear directions for model building in empirical investment research. For example, not including factor prices in investment models may seriously affect the model outcomes. Furthermore, we find that Q-models produce more negative significant estimates than other models do, ceteris paribus. The outcome of a study is also affected by the type of data used in a primary study. Although it is clear that meta-analysis cannot always give decisive insights into the explanations for the variation in empirical outcomes, our meta-analysis shows that we can explain to a large extent why empirical estimates of the investment-uncertainty relationship differ.

Keywords: investment, uncertainty, meta-analysis

JEL Classification: C10, D21, D80, E22

Suggested Citation

Koetse, Mark J. and de Groot, Henri L.F. and Florax, Raymond J.G.M., The Impact of Uncertainty on Investment: A Meta-Analysis (July 2006). Tinbergen Institute Discussion Paper No. TI 06-060/3. Available at SSRN: https://ssrn.com/abstract=917095 or http://dx.doi.org/10.2139/ssrn.917095

Mark J. Koetse (Contact Author)

Free University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31(0)20 598 6168 (Phone)
+31(0)20 598 6004 (Fax)

Henri L.F. De Groot

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6168 (Phone)
+31 20 598 6004 (Fax)

Tinbergen Institute

Gustav Mahlerplein 17
Amsterdam, 1082 MS
Netherlands

Raymond J.G.M. Florax

Purdue University ( email )

West Lafayette, IN 47907-1145
United States
(765) 494-4300 (Phone)
(765) 494-9176 (Fax)

HOME PAGE: http://web.ics.purdue.edu/~rflorax/

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 444 6092 (Phone)
+31 20 444 6004 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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